This week’s Federal Budget focussed on a number of extensions to existing concessions, changes to superannuation, and business investment benefits, along with a number of smaller measures.
The key announcements which could impact medicos include the following:
Extensions of Existing Concessions
In an effort to remain cautious in a COVID-19 environment and support economic recovery, the Government has extended multiple previously introduced initiatives.
Low and Middle Income Tax Offset
The Government has announced that it will retain the Low and Middle Income Tax Offset (LMITO), for the 2022 year, which we see in tax returns for junior doctors. Taxpayers earning between $48,000 and $90,000 will continue to be eligible for the maximum offset of $1,080. The offset will continue to be available to taxpayers with taxable incomes up to $126,000 with a phasing out rate of 3 cents per dollar.
Full Expensing of Capital Assets
Pursuant to previous announcements, businesses with aggregated turnovers not exceeding $5 billion can claim an immediate deduction for the full cost of eligible capital assets, of any value, acquired after 6 October 2020 and installed and ready for use by 30 June 2022.
The Budget announces an extension to this immediate deduction for eligible businesses until 30 June 2023 for eligible capital assets first used or installed ready for use by this date.
We expect that passenger cars will continue to be subject to the depreciation limit.
New definitions for Individual Residency
Australia’s long standing individual tax residency rules, which largely date back to the 1930s are proposed to be fundamentally changed, resulting in an objective test based on an individual’s physical presence in Australia and their Australian connections. It is quite common for doctors to do an overseas fellowship as part of their training and we expect the new tests will make it even harder for doctors to argue that they are non-residents for tax purposes during the period they are overseas.
The changes will ensure individuals who spend 183 days or more in Australia are tax residents by default, and a secondary test will apply to individuals who are potentially commencing residency and are not in Australia for 183 days in a financial year. This secondary test considers objective factors relating to:
- The individual’s right to reside permanently in Australia;
- Australian accommodation;
- Family ties to Australia; and
- Australian economic interests.
For individuals departing Australia, a slightly different test will be applied (if the 183 day test is not passed) based on whether an individual has been a tax resident of Australia for the past three years. Broadly, the longer an individual has been a tax resident of Australia, the more difficult it is likely to be to sever residency.
As the definitions of residency for corporates and trusts inevitably trace back to the residency of the controlling individual(s), these changes may well have an impact on structures for affected individuals too. There are also changes for residency requirements in relation to self-managed superannuation funds.
The measures are set to commence following Royal Assent of the enabling legislation, estimated to be from 1 July 2022.
Business Ideas, Investment and Intangibles
The Patent Box
The Government will introduce a new “patent box” initiative that will bring about a special corporate tax rate of 17% (rather than 30% or 25% for SMEs) on profits derived from Australian medical and biotechnology patents. The patent box will apply from 1 July 2022 to patents registered from Budget night onwards.
At this stage, it is proposed that the patent box treatment will only be available for profits derived by companies from Australian owned and developed patents in the medical and biotechnology sector.
It is not yet known exactly how the measure will interact with Australia’s imputation system, however we note that there is the potential for the lower corporate tax levied to lead to greater top-up tax payable by shareholders.
Removing the $450 per month threshold for superannuation guarantee eligibility
An administrative burden has been handed to employers with casual, ad-hoc or low income employees with the removal of the $450 per month de minimis threshold for Superannuation Guarantee (SG) eligibility. Currently, employers are only required to pay super guarantee contributions on behalf of employees if they are:
- 18 years old or over; and
- Paid $450 or more (before tax) in a month.
The Treasurer introduced this change to expand the SG coverage for individuals on lower incomes. However, the lower income earners are generally school leavers who are unlikely to have a superannuation fund or to value their retirement savings greatly. We are concerned that the removal of the $450 per month de minimis threshold will disproportionately increase the administrative burden for employers. In essence, employers will now be required to chase up superannuation fund paperwork from all employees or make inconsequential superannuation payments to a default superannuation funds that may wind up lost or ignored. The threat of large penalties for non-compliance in this space will mean that employers need to ensure their systems and processes are up to scratch here.
This change will take effect from the first financial year after Royal Assent of the enabling legislation.
Other measures in the budget include:
- Tweaks to superannuation for baby boomers, including removing the work test for non-concessional superannuation contributions and reducing the eligibility age for downsizer contributions;
- Allowing the Administrative Appeals Tribunal (AAT) to pause or modify ATO debt recovery actions where the debt is being disputed by a small business with turnover of less than $10 million;
- Allocating $2.3 billion to a National Mental Health and Suicide Prevention Plan;
- Allocating $123 million to rural health strategies including upgrading equipment and incentives for rural training;
- An additional investment of $17.7 billion over 5 years for the aged care sector;
- Increased spending of $1.9 billion on the COVID-19 vaccine rollout, respiratory clinics, testing and quarantine facilities;
- An additional $1.5 billion for testing, tracing, telehealth and services related to COVID-19;
- New medicines listed on the Pharmaceutical Benefits Scheme to treat breast cancer, lung cancer, severe osteoporosis, asthma and chronic migraines;
- An extra $6 billion over forward estimates to cover Medicare subsidised services;
- A $1.7 billion investment to make childcare more affordable by increasing the subsidy for 250,000 families. Families to save an average of $2,200 each year; and
- $10,560 annual cap in Child Care Subsidy for families earning more than $189,390 will be abolished.